Those who are self-employed or are planning to start a business from their home should make full use of the provisions made under the different home business tax deduction heads. These deductions include:

1. Home Office: A home office is that part of the house, which you use solely for your business functions. You can benefit from the home office deduction if you use this office regularly and exclusively for business. Indirect expenses and depreciation too can be deducted.

2. Car: If you use a car to carry out your business then you can deduct the business cost of the car. You can also deduct the operating and maintaining expenses of the car. The deduction can be based on actual costs or the IRS mileage rate, whichever is more beneficial to you.

3. Personal assets: You can claim a deduction on personal assets, like computers, that you use in running your business. You, however, have to qualify the percentage of use.

4. Business Journeys: Costs incurred on air tickets, hotels, internal transportation, shipping and even tipping are tax deductible. When it comes to meals though, you can deduct only half the total amount. The travel expenses of an employer, client or partner are also deductible.

5. Gifts and Entertainment: Being in a business is almost synonymous with having to entertain your clients and customers. Fortunately, 50% of your business-entertainment expense, inclusive of meals and tickets, are tax deductible. Often you may have to lavish gifts on important clients, and in this case the entire cost of the gift is deductible.

6. Retirement: The payments you make when saving for your retirement are deductible from your personal income tax. Thus it follows that the dollars you spend for your retirement plan grow tax free in your business until you retire.

7. Family Connections: Hiring your children as legal employees in your business can allow you to transfer funds in their name. And since children fall in a lower tax bracket they may not have any tax liability. However, only eight-year-olds and above can be hired. Also, the work allocated to them should be such that they can perform it without physical or mental strain. Similarly you can hire your parents as employees thus saving the dollars you spend on taking care of them.

8. Social Security: As a self-employed worker, you have to pay double the social security contribution. Fortunately, half of this contribution is tax deductible in the 1040 form.

Home Business Tax Deduction – Did You Know These 8 Deductions? is a post from: SmallBizTaxDeductions.com

The LLC tax deduction as a classification is not recognized by the federal government and therefore all entities who term themselves LLC or limited liabilities companies must figure out how to pay their federal taxes.

They have three options. They can file returns either as a corporation, a partnership or sole proprietorship. In fact, the federal government classifies certain LLCs as corporations and taxes them likewise.

These LLCs are the ones that have been formed under a State or Federal statute or under the statute of a federally recognized Indian tribe wherein they have been described either as a corporation, body corporate or body politic or a joint stock association. The same is true of businesses owned by state, foreign governments or entities described in section 1.892.2-T. Any Association formed under Regulations section 301.7701-3 is also seen as a corporation by the federal government as are insurance companies.

If an LLC is not a corporation then it can file Form 8832 and elect to conduct business either as a corporation or a partnership. A business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership. Similarly, a business entity with a single member can choose to be classified either as an association taxable as a corporation.

If an LLC does not File Form 8832, the default rules come into play. The default rules provide that if the LLC has at least two members and does not specify itself as a corporation then by default it will be considered to be a partnership, and will be required to file taxes as one. Similarly, an LLC that has only one member will have to file taxes as a sole proprietorship.

It is therefore important for all LLCs to file Form 8832, and receive the tax benefits that accrue to them. Also, to get the maximum benefits the LLCs should take the help of tax consultants.

LLC Tax Deduction – To File The 8832 Or Not, That Is The Question is a post from: SmallBizTaxDeductions.com

IRA, or Individual Retirement Arrangement, is a personal savings plan that lets you save up for rainy days and gives you tax benefits in the form of tax deductions. All contributions made to this plan are entitled to the IRA tax deduction. This also includes earnings from these contributions unless they are distributed to you.

There are two types of IRA and therefore two set of rules where deductions are concerned.

The first is the simple IRA. A traditional IRA is a personal savings plan that
encourages you to save for retirement by giving you tax advantages. Contributions that you make to a normal IRA may get you a deduction in part or whole. What you earn on your IRA is also exempt from taxes unless they are distributed to you.

To set up a simple IRA you must be less than seventy and a half years at the end of the tax year in which you have applied. Additionally, you must have a taxable compensation when you set up this plan. Taxable compensation includes: salaries, commissions, alimony, maintenance or any other means of income
generated by self. Rental or any other income from property, annuity or deferred compensation does not qualify as taxable compensation.

The maximum you can contribute to your IRA is either $ 3,000 or your taxable compensation for the year, whichever is less. The contribution limit is $ 3,500 if you are 50 years or older. If at the time of contribution, you are not covered by any other retirement plan, then the whole amount that you contribute is deductible. If, however, you are covered by a valid retirement plan, your IRA deduction can either be reduced or eliminated, depending on the amount of your Modified Adjusted Gross Income and your filing status.

As for withdrawals, anything that you withdraw from IRA is up for taxation, either wholly or in part. If you have been availing of full deduction for contribution made, the taxation on the amount withdrawn will be cent per cent.

A traditional IRA can be established at many different financial institutions, including banks, insurance companies and brokerage firms.

The other type of IRA is the Roth IRA. Roth IRA is the reverse of the traditional IRA. Contributions that you make to this RA will get you no deductions. But, there are no taxes on the withdrawals or earnings either. This exception aside, everything else about Roth IRA is like the simple IRA. Like the latter it can be either an account or an annuity. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up.

IRA Tax Deduction – Did You Know All The Different Types Of IRA Deductions? is a post from: SmallBizTaxDeductions.com

If you are a landlord then you must make sure that you avail full benefits that rental property tax deduction provides. You will be surprised as to the number of heads under which you can avail these benefits. These include rent, payment to cancel a lease, expenses paid by the renter and so on.

Some common deductible expenses include:

1. Interest: Deductible interest include mortgage interest payments on loans used to acquire or improve rental property and interest on credit card payments made to purchase goods or services for rental purposes. In fact, interest is the biggest deductible expense for the owners of rented property.

2. Depreciation: The cost of rental property can be recovered through depreciation. This benefit becomes available from year two. A landlord can continue to claim depreciation over a period of 27.5 years.

3. Repairs: Repairs such as repainting, tiling the floor, fixing leaks, plastering and replacing broken windows in a rented property are fully deductible in the same year in which the expenses are incurred. These repairs should be ordinary, necessary, and reasonable in amount and not capital improvements.

4. Travel: The landlords can avail a tax deduction on expenses they incur when they travel to their rented property to talk to tenants or carry out repairs. These expenses also include the expenses that the landlord may incur while visiting plumbing or electrical fault fixing companies. If the landlord happens to be staying in another city then he can even use his airfare and hotel bills to claim tax deduction. Smart landlords use this clause to mix business with pleasure

5. Home Office: If landlords use a part of their houses solely for activities for their rental business, then they may deduct their home office expenses from their taxable income.

6. Losses: Losses that result from fires or floods also qualify for tax deduction. This deduction may be on a part of the loss or full loss. However, the actual deduction also depends on the amount of insurance that a landlord may claim.

7. Insurance: Landlords can deduct the premiums they pay for any insurance for their rented property. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance.

8. Services: Fees paid to attorneys, accountants, property management companies, real estate investment advisors, and other professionals are deductible provided their services are used for work related to rental activity.

There also are certain expenses that cannot be deducted. These include: loss of rental income due to vacancy, expenses incurred on modifications such as a room addition, new appliances, fencing, a new roof and so on.

Rental Property Tax Deduction – Do You Deduct These 8 Expenses? is a post from: SmallBizTaxDeductions.com

The child tax deduction laws can be used to reduce your tax bill by “employing” your kids in your business. Kids here refer to minors between 7 to 17 years of age. Hiring your children not only makes them smarter, but also saves you a lot of tax money!

As a rule, every child has a standard deduction of $4,570; thus it follows that children are exempted from paying the first $4,570 in income. Now, a child hired in your business is paid the amount, which is deducted from your business accounts. The amount can be spent by the child (or by you), and the icing on the cake is that you save $1,425 in taxes (if you are in the 30% tax bracket)

Interestingly, you are cleared from paying social security tax on the “wages” that you pay the child if your child is a minor and if you reimburse them out of a sole proprietorship or partnership.  Social security taxes are levied if, and only if, the wages come out of a corporation.

You do have to do some paperwork to avail this benefit. Form 941 is to be submitted four times in a year. This is basically a form used to withhold finances generated by an employee; however, for a child there will be no withholding. Further, at the end of the year, you will have to issue a W-2.

Kids are legally allowed to be hired as employees by their parents when they are 7 years old, provided that the work assigned to them is not mentally and physically challenging, and is within their means to achieve it. The number of hours and the type of assignments completed by the child should be recorded on an Excel Sheet. As long as the pay and the work given to the child are reasonable, you can avail of the tax deduction.

The wages given to your kids do not go into their piggybanks, but into your bank. The money can, and will, be spent only with your approval on the necessary clothes, education, toys, and so on.

Finally, the most important record to keep is to make sure that your kids do not pay for more than 49% of their expenses. Their total expenditure thus needs to be tracked at all times, because if they cross the 50% mark, then you end up losing them as an itemized deduction on your personal return.

Child Tax Deduction Laws – Are Your Kids Eligible? is a post from: SmallBizTaxDeductions.com

Self-employment tax deduction is a blessing for those who run their own business or are planning to set up their business. They can avail several tax benefits on their expenses — benefits that were note available to them when they were working as employees. The self-employed professionals can use their Social Security number as their business tax identification number and file taxes under Schedule C or Schedule C-EZ.

It is important to understand the two schedules, because each provides a different benefit. Form Schedule C-EZ should be used by those whose business expenses are small, who end up the year with a profit, who run the business without any employees, who have no need to claim a home-office deduction and who do not report any depreciation.

Form Schedule C is for business enterprises that are more elaborate. In addition to asking your gross income, you are quizzed in detail about your business expenditure. The main difference between the two forms is that with Schedule C it is possible to report a loss, and make a tax saving.

The following are the tax deductions that you can claim if you are self-employed:

Equipment Expenditure: Section 179 is a deduction that helps you subtract the entire cost of equipment purchased for your business in the same year. This includes costs incurred on purchasing a computer or filing cabinet or any other item relevant to your business requirements. However, there is a limit to this claim. The best place to check the amount is IRS Publication 946 because this amount is changed frequently.

Besides this, your travel (including mileage) and a percentage of meal and entertainment expenses also are deductible. However, to claim these benefits you have to produce receipts and explain the purpose of the expenditure.

Health Insurance and Social Security Taxes:  You can avail deductions on health insurance premiums paid for yourself and your family members. Similarly, a part of the payment you make as social security tax can be retrieved from your total income. However, this deduction is available on Form 1040 form and not on Schedule C.

Self-managed retirement benefits: You can open a Keogh or a Simplified Employee Pension plan. The contribution that you make to either of these plans from your earnings can be subtracted from your adjusted gross income when you file Form 1040.

Home Offices: Those of you who use a part of your houses merely for book keeping and file storage can now claim a home office deduction. Now this is possible even if you spend a lot of time doing business outside of your house office.

Self Employment Tax Deduction – How Can Anyone Forget This One? is a post from: SmallBizTaxDeductions.com

The owners of mobile homes, who pay taxes to local governments, for parking their homes in their cities or state, are also eligible for mobile home tax deduction. This is because the IRS rules define a home as a house, co-op, condominium, mobile home, trailer, or even a houseboat. The limiting condition for any property to qualify as a home is that it should have sleeping, cooking, and toilet facilities. Since mobile homes meet all these conditions they can avail the tax deductions notified by the federal government.

The biggest tax deduction that a mobile home owner can avail is on mortgage interest . Joint tax holders, in fact, can deduct the entire interest amount up to a maximum of $1 million in mortgage liability paid on a first and possibly second house.

You don’t have to calculate how much amount you deduct. All that you need to do is to wait for the lender to send Form 1098 at the end of the year. This form will tell you how much interest you have paid on the loan, and the points that are due to you. This becomes your deductible interest.

The second head on which you get deduction is what IRS calls home acquisition debt.  This debt is equal to the first or second mortgage used to buy, build, or improve your home.

Home equity debt is another head on which you can avail a deduction. Basically, this is any loan amount in excess of what was spent to purchase, build, or improve your home. Points paid during refinancing are also tax deductible.

Finally, you can deduct any property tax that you paid to a local or state government where you parked your mobile home. These are great tax benefits and every mobile home owner must avail them. There is no point in paying local taxes and forgetting to make use of federal benefits.

Mobile Home Tax Deduction – Get The Federal And State Benefits is a post from: SmallBizTaxDeductions.com

There are few taxpayers who are fully aware of the different heads under which the medical expense tax deduction is available. Those who know make full use of it to cover large portions of their medical bills. They know that they can deduct medical costs as long as it is more than 7.5 percent of their adjusted gross income
The others too need to make use of Uncle Sam’s largesse by using the following guidelines:
1. The first is to reach the 7.5 per cent magical figure. For this, you should take into account the medical expenditure of not only yourself, but also every member who is listed on your tax return. This can include your spouse, your children and all other dependents. You are even allowed to include the medical and dental bills of a family member who may have died during the course of the tax year.

2. You also need to include expenses like transportation from your residence to the place of treatment. The expenses can be calculated by making use of the cents-per-mile allowance given on the IRS website. This is not the only expense that you can add. There are several others like long term care insurance (based on your age), uninsured treatments such as an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids and artificial limbs. Amazingly, some weight loss programs to have been added to this list.

3. If you have special medical needs such as the use of wheelchairs, crutches, hearing aids, these are also tax deductible. Moreover, if you remodel your house — on the doctor’s orders of course — and add a ramp or widen the doors, then these costs are partially deductible.

4. Miscellaneous deductions: Also don’t forget miscellaneous deductions. These include: expenses made on legal abortion, acupuncture, eye surgery, drug rehabilitation, prescription drugs and insulin, nursing home and nursing services, ambulance service, hospital expenses, laboratory fees, health insurance premiums, dependent fees paid to physicians, surgeons, specialists, dentists, psychologist, and other medical practitioners
Add these up, and any figure beyond the 7.5 per cent mark is tax deductible.

On the flip side there are certain costs that are medical, but which cannot be deducted. These include: cosmetic surgery, gymnasium payments or costs of a weight loss program, hair transplant and electrolysis operations, bottled water-still or sparkling, dancing lessons, teeth whitening, maternity clothes and diaper service.

Medical Tax Deduction Benefits – Learn What Can Be Deducted And What Can’t is a post from: SmallBizTaxDeductions.com

Child care tax deduction is a policy that gives you yet another reason to keep your family tree growing. There are many tax savings that you may be entitled to because of your new bundle of joy. Some of the benefits are:

(a) Supplementary exemption called Dependency Exemption
(b) Child Tax Credit
(c) Child and Dependent Care Credit
(d) Tax deduction, by transferring revenue to the child.

(a) Dependency Exemption: This is a form of personal exemption and it reduces your tax bill by subtracting the necessary amount from your gross income directly proportional to the annual inflation. This exemption should meet the following criteria:
• The child (dependent) must be living at your residence throughout the year or he/she must be a relative.
• The dependent’s gross income must not exceed the annual exemption amount. This clause, however, does not apply to children who are less than 19 years of age or are full-time students whose age is less than 24 years.
• The taxpayer must support at least half the dependent’s total cost of living.
• The dependent must be a resident of the US, Mexico or Canada.

If the dependent meets all these rules, then all you need to do is furnish the dependent’s social security number, and you are qualified for another exemption.

(b) Tax Credits: In addition to the personal dependency exemption, there are certain tax credits that may apply to you after your children are born. For instance, you are entitled to Child Tax Credit and Child and Dependent Care Credit. Tax credits are a real advantage because they literally cut the amount of tax you pay on a dollar-for-dollar basis. In cases where the child is adopted, it is even possible for the foster parents to assert tax credits on their income tax for legal adoption expenditure.

(c) Income shifting: Since children fall in a lower tax bracket, it is also possible to save on tax money by transferring funds from the parents to the children. However, care should be taken while doing this. For instance, putting a grown-up’s investment in a child’s name is not permissible.

Child Care Tax Deduction – Dont Forget To Claim All These 4 Deductions is a post from: SmallBizTaxDeductions.com

A key benefit of buying a home is to get tax deductions on the mortgage interest and the real estate tax. The mortgage tax deduction can be availed as long as the loan amount for the primary residence and second home is less than $1.1 million. This makes this deduction one of the best ways to trim taxes.

An important date in the US home loan calendar is October 14, 1987. All home loans taken before this date are exempt from new rules. A taxpayer can deduct the full interest paid on these loans, regardless of its size and the purpose for what it was used. Similarly, any refinanced debt incurred before October 14, 1987, is rolled into the total acquisition indebtedness.

For those who are new to mortgage tax, acquisition indebtedness is the money that you borrow to buy, build, or improve your home. The tax code is complex when it comes to this debt. Broadly, it lays down that that you can deduct mortgage interest up to an acquisition indebtedness of 1.0 million on all loans taken after October 14, 1987.

The limit for equity indebtedness is $100,000. This means that you can borrow up to $100,000 of the equity in your home and use it for whatever you want. This again is a huge improvement on the pre-1987 years where you could use this money only for home improvements, medical and education expenses

In the past many homeowners refinanced mortgages on their appreciating properties to draw on their equity. They used this sum to buy new cars or take expensive vacations. This benefit has been withdrawn under the new tax laws. Homeowners can no longer make unlimited mortgage interest deductions when drawing on equity.

A second mortgage, or “junior lien”, allows the homeowner to make use of part of the equity that has built up in the home over time. Getting a second mortgage is very much like taking out your first mortgage in terms of closing costs.

The homeowners can also use the use the equity in their home like a credit card. They can borrow against it as and when they need. The lender will charge interest only on the portion of the equity borrowed against. This then becomes the amount on which the homeowner can claim tax deduction.

Mortgage Tax Deduction – Let Your Home Put Money In Your Pocket is a post from: SmallBizTaxDeductions.com